Summary

• Surging AI chip demand creates investment opportunities across the entire semiconductor supply chain.
• Foundries, equipment makers, and design software firms are key beneficiaries of this growth.
• Investing in the supply chain offers a diversified approach to the AI revolution.
• The industry's expansion supports multiple major players, benefiting the whole ecosystem.

The Real Money in AI Chips Might Not Be Where You Think

Another day, another breathless headline about a chip company. This time it’s AMD, whose recent revenue forecast has sent the usual suspects into a tizzy about the insatiable demand for AI processors. And yes, it’s all very exciting. But if you ask me, focusing solely on the big, shiny names like AMD or NVIDIA is a bit like going to the theatre and only watching the lead actors. You miss the entire production, the set designers, the lighting crew, the director, all the people who actually make the show possible.

To me, the real story, and perhaps the more interesting investment case, lies in the background. It’s in the complex, sprawling, and utterly essential supply chain that props up this entire AI revolution.

The Unsung Heroes of the Silicon Gold Rush

Let’s be clear. When a company like AMD announces it expects to sell a mountain of new chips, it isn’t just patting itself on the back. It’s sending a massive signal down a long and complicated chain of command. Think of it like a modern gold rush. Whilst everyone is scrambling to find the next big nugget, the clever money is often with the people selling the pickaxes, the shovels, and the sturdy denim trousers.

Every single one of those advanced AI chips has to be physically made somewhere. That’s where the foundries, the factories of the 21st century, come in. And those foundries need incredibly sophisticated, eye-wateringly expensive machinery to operate. They also need cutting-edge software to design the chips in the first place. This creates a powerful ripple effect. The demand for one AI chip doesn’t just benefit one company, it feeds an entire ecosystem of highly specialised, often overlooked, firms.

The Foundry at the Centre of the Universe

At the heart of this ecosystem sits Taiwan Semiconductor Manufacturing Company, or TSM. To call them a critical link is an understatement. TSM is the foundation upon which modern technology is built. They manufacture the chips for almost everyone who matters, from Apple to, you guessed it, AMD and NVIDIA.

Their dominance isn't an accident. It’s built on decades of expertise and billions in investment, allowing them to produce chips at a scale and complexity that few can even dream of matching. So, when chip designers forecast booming sales, TSM is a direct beneficiary. They are the landlord of the digital world, and the rent is always due. As AI chips become ever more complex, they play directly into TSM’s hands, reinforcing their indispensable position.

The Architects and the Toolmakers

Before a single piece of silicon is touched, however, a chip has to be designed. This happens using fantastically complex software known as Electronic Design Automation, or EDA. These software firms are the architects of the digital age, providing the blueprints for every processor. They often enjoy handsome profit margins and sticky, recurring revenue, because once a design firm is hooked on their software, it’s very hard to leave.

Then you have the toolmakers, the companies that build the machines that build the chips. We’re talking about firms that create photolithography systems, etching tools, and testing machinery, each a marvel of engineering costing millions. When foundries need to expand or upgrade to meet AI demand, it’s these equipment makers who get the call. It’s this entire ecosystem, this AI's Expanding Frontier: The Chip Supply Chain, that really gets my attention as an investor. It’s a way to look beyond the poster children of AI and at the industrial backbone making it all happen.

Of course, one must remain pragmatic. The semiconductor industry is notoriously cyclical, prone to dramatic booms and busts. Geopolitical tensions, particularly surrounding Taiwan, cast a long shadow that cannot be ignored. And technology moves at a blistering pace, what’s cutting-edge today could be obsolete tomorrow. This is no place for the faint of heart. But for those willing to look past the obvious, the intricate web of companies powering the AI boom might just offer a more diversified and compelling story.

Deep Dive

Market & Opportunity

• Surging demand for AI chips is confirmed by strong revenue forecasts from major chip designers.
• The AI investment cycle is considered to be in its early stages, suggesting a potential multi-year build-out of infrastructure.
• A multiplier effect is present, where demand for chips creates a ripple effect of demand for foundries, manufacturing equipment, and design software.

Key Companies

• NVIDIA Corporation (NVDA): The leader in AI chip design, especially for data centres. Its graphics processing units are exceptionally well-suited for AI workloads.
• Advanced Micro Devices, Inc. (AMD): Designs AI processors and has signalled intense demand with a robust revenue forecast. It relies on foundries for manufacturing.
• Taiwan Semiconductor Manufacturing Company Limited (TSM): A critical global chip foundry that fabricates advanced semiconductors for major technology firms, including Apple, NVIDIA, and AMD.

Primary Risk Factors

• The semiconductor industry is cyclical, with periods of strong demand often followed by downturns.
• Geopolitical tensions, particularly around Taiwan and China, create risks for the sector.
• Companies can be negatively impacted if they fail to adapt to rapid technological shifts in manufacturing or design.
• Currency fluctuations can affect international companies that operate across multiple countries.

Growth Catalysts

• The AI market is large enough to support several major chip designers, increasing demand across the entire supply chain.
• The increasing complexity of AI chips requires more advanced manufacturing processes, benefiting specialised foundries.
• The expansion of AI capabilities across all industries is driving a sustained, industry-wide investment cycle in semiconductors.

Investment Access

• The AI's Expanding Frontier: The Chip Supply Chain Neme is available on the Nemo platform.
• Nemo is an ADGM-regulated platform offering commission-free investing.
• The investment is accessible via fractional shares starting from £1.